Wal-Mart tests smaller convenience stores to exploit new growth areas

As Wal-Mart tests smaller stores in the US on a university campus in Arkansas, could this be the start of a more aggressive push into convenience-orientated formats?

The testing of the Walmart on Campus store, offering food and non-food ranges on a university campus site to replace a parapharmacy/drugstore outlet, is set to start in January 2011. It illustrates Wal-Mart’s intention to pursue new growth opportunities by competing against the two major parapharmacy/drugstore players, CVS and Walgreen, which expanded rapidly between 2005 and 2010 in the US.

As Wal-Mart faces saturation in the hypermarket and mass merchandiser channels and struggles to find suitable new store locations without cannibalising existing ones, it will test several new smaller store concepts. Following modest sales growth in the US in 2010 and the disappointing outcome of its Project Impact programme, the case for Wal-Mart to diversify into smaller stores appears to be increasingly compelling.

Implications for Wal-Mart:

The retail behemoth has built its global dominance on large big-box store formats in the US. Although it has seen some success with small grocery retailing formats in South America, it is venturing into relatively unchartered territory. Operating small stores in the US will require the company to gain new logistics and supply chain skills.

Implications for Wal-Mart’s competitors:

In addition to its traditional supermarket competitors such as Kroger and Royal Ahold, competitors of small Wal-Mart stores will include CVS and Walgreen, as well as convenience store chains such as Seven & I’s 7-Eleven. With the arrival of a powerful new competitor encroaching on their core territories, especially closer to city centres, these players could become entangled in more aggressive price wars.

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